$2\mathrm{.}1$ Suppose that a $$200$M VC fund has a management fee of $2\mathrm{.}5$ percent

per year for the first five years, with a reduction of $0\mathrm{.}25$ percent $(25$ basis

points$)$ in each year thereafter. All fees are paid on committed capital,

and the fund has a $10-$year life. What are the lifetime fees and

investment capital for this fund?

$2.$

$2\mathrm{.}3($Hint$)$ A VC firm is considering two different structures for its new

$$250$M fund. Both structures would have management fees of $2$ percent

per year $($on committed capital$)$ for all $10$ years. Under Structure I, the

fund would receive an X percent carry with a basis of all committed

capital. Under Structure II$,$ the fund would receive a Y percent carry

with a basis of all investment capital. For a given amount of $($total$)$ exit

proceeds $=$ $Z$,$ solve for the amount of carried interest under both

structures.

Carried Interest Under Structure $1=$ X$\%*($z $-250)$

Carried Interest Under Structure $2=$ Y$\%*($z $-250-(250*2\%*10)$

Carried Interest Under Structure $2=$ Y$\%*($z $-200)$

Using the Hint, solve the following question.

$2\mathrm{.}3$ A VC firm is considering two different structures for its new $$250$M

fund. Both structures would have management fees of $2$ percent per year

$($on committed capital$)$ for all $10$ years. Under Structure I, the fund

would receive and $30$ percent carry with a basis of all committed capital.

Under Structure II$,$ the fund would receive a $20$ percent carry with a

basis of all investment capital. For a given amount of $($total$)$ exit

proceeds $=$ $$500$M$,$ solve for the amount of carried interest under both

structures.

a$.$ How much is the carry amount under each structure? How much is

distributed to LPs under each structure?

b$.$ For what amount of exit proceeds would these two structures yield the

same amount of carried interest?